Water Bill

Maria Eagle Excerpts

Monday 25th November 2013 Commons Chamber

[Maria Eagle (Garston and Halewood) (Lab)]

Despite the sensible measures that are contained in the Bill, this is a wasted opportunity to tackle the impact that rising water bills are having on stretched household budgets. Water bills have increased by almost 50% in real terms since privatisation. With wages not keeping pace with inflation, that is adding to the cost of living crisis. Prices have risen faster than wages in 40 of the 41 months in which the Prime Minister has been in Downing street. People are more than £1,600 a year worse off on average under this Government.

The rising cost of water is adding to that pressure. However, the Bill fails to provide Ofwat with tougher powers to bring down prices and it fails to require water companies to help those who are struggling to pay their bills. Despite the promises from the Prime Minister that we would see action, the Secretary of State has not brought forward a single new measure. All that we have seen is one weakly worded letter to water bosses, begging them not to hike bills next year. There was not even a threat of action if they take no notice—no threat of a tougher regulatory regime and no threat to impose an affordability scheme.

[Mr Paterson]

I am very grateful to the shadow Secretary of State for giving way. It might rather spoil her argument if I pointed out that all the current prices were set by her Government in the last price review in 2009. Between 1999 and 2009—between the first and last price reviews under the last Government—water bills rose in real terms by £65, from £324 to £389, which is an increase of more than 20% in the average household bill. Today, under this Government, the price of the average bill is £388.

[Maria Eagle]

The right hon. Gentleman appears to be making a second speech. The previous Government were the only Government to see water bills cut during their time in office. We need to see a determination in the right hon. Gentleman to ensure that Ofwat has the proper powers to deal with water companies. He ought to remember, even if he is technically in favour—

[Mr Redwood]

Will the hon. Lady give way?

[Maria Eagle]

I will finish dealing with the Secretary of State’s point before I give way to anybody else. He needs to ensure that Ofwat has the power to deal with water companies that have a captive market. Even if he gets to increasing competition and extending it to householders, as he said himself, that will not happen for some time.

[Mr Paterson]

rose—

[Maria Eagle]

I will not give way until I have finished answering the point the right hon. Gentleman has already made. Even if we get to such a point, there will be a significant period in which householders are subject to a monopoly. He must ensure that Ofwat has the relevant powers.

During our exchanges in the House in questions to the Department for Environment, Food and Rural Affairs last Thursday, I asked the right hon. Gentleman what steps he had taken between meeting the water companies in July, which he referred to in his letter, and his follow-up letter to them this month. He was not able to list a single action because the truth is that he did nothing for four months until he began acting under orders from No. 10. That was after the Prime Minister decided that he had no choice but to appear interested in the issue, following an intervention from the Leader of the Opposition.

The right hon. Gentleman made it clear in his letter to the water companies that he favours a voluntary approach, with companies deciding for themselves if and how to help those who are struggling. He does not propose any new powers to widen Ofwat’s scope to reopen pricing settlements between reviews, yet while customers pay among the highest bills in Europe, water companies are doing well from their monopoly position.

Last year, regional water companies made £1.9 billion in pre-tax profits, but paid out a staggering £1.8 billion to shareholders. We know they do that and that it is achieved through financial engineering designed to maximise their debt and minimise tax liabilities. That is unacceptable and morally wrong when people are struggling, and I believe people across the country will agree.

[Caroline Lucas]

With 40% of low-income households paying some of the highest bills, and three-quarters of our rivers being degraded through abstraction, does the hon. Lady agree that a privatised monopoly industry is failing our environment and consumers? Does she also agree that we need to move the Bill towards greater public ownership and public control of our water resources?

[Maria Eagle]

I have some sympathy with the first part of the hon. Lady’s intervention, but perhaps less so in practical terms with her latter point.

[Mr Redwood]

I am interested in the Opposition’s argument. What reduction in bills could the extra powers that the hon. Lady wants the regulator to have produce for the average consumer, and how much should companies put into helping those who have a problem with affordability?

[Maria Eagle]

I will say a little more about what extra powers I think the regulator should have, and perhaps at that point I will deal with some of the questions raised by the right hon. Gentleman.

The Opposition will seek to amend the Government’s legislation and address its central weakness, which is the lack of measures to tackle the contribution that rising water bills are having on household budgets. First, we will seek to grant Ofwat more wide-ranging powers to reopen price reviews between the current five-year periods. In his answer to me last Thursday the Secretary of State said:

“I have written to water companies to call on them to consider the pressure on household incomes when making future bill decisions and, in particular, to consider whether they need to apply the full price increases next year allowed for in the 2009 price review.”—[Official Report, 21 November 2013; Vol. 570, c. 1350.]

However, it should not be for water companies simply to “consider” limiting price rises; the regulator needs much greater powers of intervention when those companies are making far more than anticipated at the time of the review.

[Mr Paterson]

I am grateful to the hon. Lady for giving way again. The fact is that the previous Government let Ofwat go to sleep. They did not have a proper regulator but we have a robust new regulator in Jonson Cox. Only last week he turned down a proposed price increase by Thames Water, which would have put 8% on bills. That is what a proper regulator does, backed by a proper Government who have a real interest in keeping bills down for our hard-working families.

[Richard Benyon (Newbury) (Con)]

The hon. Lady has been on her feet for some time and I am looking forward to hearing her vision for the water sector for the years ahead. I hope she gives the House a view on how we can encourage more investment to tackle the problems described by hon. Members on both sides of the House. She is talking about the very important question of prices for our households, but will she extend that to talk about the great need for greater investment in our water sector?

[Maria Eagle]

If the hon. Gentleman is slightly more patient, he will hear what I have to say in the rest of my speech on those and other matters, but the Secretary of State was on his feet for 35-plus minutes, so the hon. Gentleman has not been waiting too long yet.

It is time for a wider review of whether we have the right balance between Ofwat’s regulatory role and the need for a powerful champion for consumers. The review should consider the future relationship between, and roles of, Ofwat and the Consumer Council for Water. I believe there is a need for a proper ombudsman role because adequate powers of redress for customers do not currently exist. The Bill should have established such an arrangement rather than simply arranging for it to be possible at some undefined point in the future.

The Government should also consider accepting the Consumer Council for Water proposal for it to be given enhanced rights to be consulted on each water company’s charging scheme and any changes to it, and a continual scrutiny role to “find and fix issues”, as it puts it, as they arise. I believe there is merit in those proposals and hope Ministers agree.

The second major change the Opposition want during the passage of the Bill is the introduction of a clear legal requirement on water companies to sign up to a new national affordability scheme. When I raised that with the Secretary of State last Thursday, he responded:

“The Government encourage water companies to introduce social tariffs for vulnerable consumers and to reduce bad debt.”—[Official Report, 21 November 2013; Vol. 570, c. 1350.]

However, it is absolutely clear that his encouragement is not enough. Just three companies have introduced social tariffs, with fewer than 25,000 customers receiving assistance. Considering that Ofwat estimates that 2.6 million households, or 11%, currently spend more than 5% of their income on water, it is clear that only a tiny fraction of those struggling are being helped.

[Miss McIntosh]

The hon. Lady will recall that the Flood and Water Management Act 2010 contained provisions for social tariffs, but the Department for Work and Pensions refused, as it continues to refuse, to allow the information relating to benefits to be released. I cannot understand why that is the case, but why did Labour Members not push harder for that information to be released when Labour was in government?

[Maria Eagle]

The hon. Lady has a point, and I will shortly say something about what I believe we ought to do about it.

It is not good enough that so few customers can benefit or receive assistance when they have genuine hardship in paying. It is time to replace voluntary social tariffs with a national affordability scheme, funded by the water companies from their excess profits. We need to end the postcode lottery that means that the help one can get depends on where one lives, and we need the Government to set clear eligibility criteria.

In response to my question last week, the Secretary of State said:

“The shadow Secretary of State has to recognise that the schemes that help some water bill payers are paid for by others.”—[Official Report, 21 November 2013; Vol. 570, c. 1352.]

Of course, that is the Government’s approach because he is not willing to stand up to vested interests. He is not willing to say to the water companies that they cannot continue to pay out almost every pound they make in dividend payments—£1.8 billion last year—and leave it solely to other customers to fund measures to help those in need. The Government should finally drop their opposition to a national affordability scheme and require the water companies to step up and meet their social obligations.

[Mrs Caroline Spelman (Meriden) (Con)]

rose—

[Maria Eagle]

I will give way to the former Secretary of State.

[Mrs Spelman]

For the benefit of the House, it is only fair to explain that there are two ways that the most vulnerable people in society can be helped. The hon. Lady mentioned social tariffs, but the WaterSure scheme, which is funded centrally from Government and does not require cross-transfer between water consumers in any one company, helps households that consume large quantities of water through no fault of their own.

[Maria Eagle]

The right hon. Lady is correct. I was about to mention WaterSure in my next breath, if she had waited a moment.

WaterSure was introduced by Labour as a targeted payment to households with three or more children or to households that demand a high use of water owing to a medical condition, yet only a third of eligible households access the scheme. Ministers should set a target and work with the water industry to ensure it is achieved, and use existing data on benefits to ensure that everyone eligible is on the lowest tariff. It is essential that the cost to households of non-payment, by others who can afford to pay—

[Sheryll Murray (South East Cornwall) (Con)]

Will the hon. Lady give way?

[Maria Eagle]

I will give way to the hon. Lady in a moment.

It is essential that the cost to households of non-payment by others, who can afford to pay but who choose not to, is finally tackled. Failing to address this matter is unacceptable when it adds £15 to the average bill and households are struggling with rising bills. It is time to require landlords to provide tenants’ details to water companies, something the Environment, Food and Rural Affairs Committee, chaired by the hon. Member for Thirsk and Malton (Miss McIntosh), has demanded.

[Sheryll Murray]

Will the hon. Lady give way?

[Maria Eagle]

No.

The Department for Environment, Food and Rural Affairs should implement the provisions in the Flood and Water Management Act 2010 on bad debt without further delay.

On the financial practices of water companies, I urge the Secretary of State to press his right hon. Friend the Chancellor to use the autumn statement next week to set out measures to crack down on the tax avoidance that we know goes on in the water industry. We cannot have a situation where water companies are taking strategic decisions with the clear purpose of structuring their financial affairs in a way that leads to worrying—

[Sheryll Murray]

On a point of order, Madam Deputy Speaker. The Secretary of State was generous with his time. I cannot understand why the shadow Secretary of State is not being as generous.

[Madam Deputy Speaker (Dawn Primarolo)]

Order. That is not a point of order; it is a point of debate. The hon. Lady knows full well that it is up to the person speaking to decide whether they will give way. There have been interventions. We will have to wait and see if there will be any more.

[Maria Eagle]

We cannot have a situation where water companies are taking strategic decisions, with the clear purpose of structuring their financial affairs in a way that leads to worrying debt and hinders their ability to invest, when their sole purpose is to minimise their tax liability. Ofwat said in March that

“the overall proportion of equity has diminished from 42.5% in 2006 to 30% of regulatory capital value today with several companies at 80% gearing, thus obtaining only one fifth of their financing from equity. This reduction is a serious concern.”

[Mr Graham Stuart (Beverley and Holderness) (Con)]

I thank the hon. Lady for giving way. She makes an important point about the behaviour of the water companies. Will she explain why, under the previous Government, the water companies’ combined debt of £939 million in 2004 had increased by 70% by 2010, when her party left office? Perhaps she could provide us with some context.

[Maria Eagle]

I understand the hon. Gentleman’s point. I do not believe the Labour Government did enough during our time in office to ensure that that was correctly handled, but that is not a reason to allow the water companies off the hook now.

Under Ofwat’s current powers, capital structure and consequent risk are matters for the boards and shareholders of those companies, so any action must come from the Government. We have seen from briefings to the Financial Times that Ministers are considering reducing the interest payments that can be deducted from a company’s tax bill, especially for larger and more highly indebted companies—as many water companies now are—or even putting a levy on the debt held by highly leveraged water companies. Whichever solution—if any—that the Government decide on, it must happen quickly.

Despite the gaping hole left by the Government’s failure to introduce in the Bill measures on water affordability for households, there are measures that we support. That should not be a surprise, given that they arose from three important reviews taken forward by the last Government: the Pitt review on flooding, the Walker review on affordability and the Cave review on competition.

[George Hollingbery]

The hon. Lady has made some candid remarks about the last Government’s failure and some sensible points about what might be changed in the Bill. She also makes much of the Government’s admission of certain issues that she now thinks are terribly important, but nowhere in the Environment, Food and Rural Affairs Committee’s scrutiny of the Bill, published only eight or nine months ago, is there a record of any Labour Member making any of the suggestions that she is making now. Is this not just a transparent device to bring a certain topic in a certain context to the Chamber today?

[Maria Eagle]

The hon. Gentleman is entitled to his opinions.

The three reviews built on the Flood and Water Management Act 2010, which we enacted before the last election. We support the measures to increase competition and enable non-household customers to choose their water supplier, and we want new entrants into the sector and so support measures to encourage that development. We also support the regulatory reforms designed to place a greater focus on the long-term resilience of water supplies and the measures to provide, at long last, the statutory basis for agreement on reinsurance.

We have concerns about several areas, however, many of which are shared by the Environment, Food and Rural Affairs Committee, chaired by the hon. Member for Thirsk and Malton. First, we agree with the Government’s decision to open up non-residential competition, as there is increasing evidence of a successful market emerging in Scotland. The introduction of competition for business customers is intended to provide choice, drive down costs and improve water efficiency, and we hope that it is successful, but the Government should listen to the Select Committee, which has said:

“We believe that protecting householders from subsidising competition in the non-household sector is a fundamental principle that should be enshrined in primary legislation.”

The Consumer Council for Water has rightly said:

“It is a vital principle that customers who are not eligible to switch retailer should not be disadvantaged. This should ideally be reflected in legislation.”

The statement in the recently published charging principles that household customers will not subsidise the development of competitive markets for business customers is a step forward, but not enough. We agree with the Select Committee and the Consumer Council for Water that it should be included in the Bill, and if Ministers refuse to reconsider their decision, we will seek to amend it.

Secondly, we do not understand why Ministers are being stubborn over enabling water companies to exit the retail market, which seems a perfectly non-contentious but important principle for the effectiveness of a market. The Select Committee is also clear on that point, and I think that the Government should rethink it. Thirdly, the Secretary of State should reconsider his decision not to require the separation of company wholesale and retail arms as part of his package of reforms. The Select Committee has called for a

“requirement for the functional separation of incumbent companies’ wholesale and retail arms. We further recommend that the principle of non-discrimination be included on the face of the Bill.”

We agree with the Select Committee.

Fourthly, we believe that the Government’s concerns about agreeing to the wide-ranging calls to elevate Ofwat’s sustainable development duty to a primary duty are misplaced. The Select Committee said:

“We are persuaded that the increasing pressures on our water resources, highlighted in the Water White Paper, justify such a change.”

The change is also supported by the 15 environmental non-governmental organisations that make up the Blueprint for Water coalition, including the WWF, the Royal Society for the Protection of Birds, the Wildlife Trusts and the Marine Conservation Society. Without the change, Ofwat could, for example, be forced to strike out investment to deliver demand management in over-abstracted areas by having to place significant financial implications for companies above the principles of sustainable development.

[Richard Benyon]

May I take the hon. Lady back to the question of exits? We looked carefully at this, and I believe that the kind of structure our water industry should have is a matter for this House and this Parliament. If she is saying that we should allow exits, she is effectively saying we should allow water companies no longer to be integrated, when it is the Government’s belief—and perhaps that of the Opposition—that they should be. If we were to allow exits, it would say that water companies could change their structure, but does she not agree that that should be a matter for Parliament, not for the water companies to decide on a whim?

[Maria Eagle]

I am of course interested to hear the views of the hon. Gentleman who was, until recently, a well-liked Minister in the Department. [Interruption.] Well, he is still well liked, but no longer a Minister. I am not wishing to rub it in, but he decided to return to the Back Benches. [Interruption.] I am trying to be nice to him, although I know that that is unusual. It is interesting to hear his point of view. Water companies have changed their structures since privatisation, and I view it as normal in a functioning market for organisations to be able to exit it. I am sure that this can be considered in greater detail in Committee. I do not know whether he will have the honour of serving on the Committee—we will wait to see—but we will have an opportunity, as I say, to debate the issue in more detail in Committee. It is odd to open up a market and then to prevent certain companies from leaving it.

I was moving on to my fifth point about the detail of the Bill. We have serious concerns about the Government’s disjointed and, frankly, botched plans to introduce upstream competition. We support the principle of upstream competition and acknowledge the benefits that it could bring, but even a slimmed-down version of the Government’s plans would not adequately address the potential consequences of not taking forward abstraction reform in parallel.

The Government’s White Paper “Water for Life” set out a strong case for abstraction reform, yet the target date for a new regime is now 2022. The fact is that, historically, we have seen the over-allocation of water resources. Competition in advance of abstraction reform risks increasing the total amount of water taken from the environment—not least as those with unused or part-used abstraction licences seek new ways to realise their value.

The Government are asking the House to support these reforms, although their sustainability is dependent on a further piece of legislation. The Secretary of State knows full well that this is a promise that he cannot guarantee to deliver. Regretfully, I have to say that, unless he is able to offer some very convincing remedies on this issue, our instinct will be to seek to remove this entire part of the legislation. It would be better for the Government to bring back a properly integrated set of reforms in the future.

We support the measures on flood reinsurance—however belated they may be. It was disappointing that the Government were adding clauses to the Bill at such a late stage, but they are welcome, and we will scrutinise them carefully in Committee. The Government’s climate change risk assessment states that floods are the greatest threat that climate change poses to our country. That is one of the reasons why the Secretary of State should take the issue far more seriously, and why it is, frankly, incredible that he has talked of the benefits that could come to the UK from climate change.

There are real risks and far-reaching consequences for the UK from climate change, yet the Secretary of State’s complacent approach, combined with severe cuts to investment in flood defences, is deeply worrying. I hope that he has seen the letter that he has been sent in the past week by Professor Lord Krebs, chairman of the adaptation sub-committee of the Committee on Climate Change. In that letter, Professor Krebs raises serious concerns about the failure of the Government’s proposals to strengthen incentives for the uptake of household flood protection measures. He warns that the consequences will be

“that Flood Re costs will be higher than they need to be, at the expense of householders funding the programme through the industry levy.”

The Committee on Climate Change has therefore made five proposals that it believes believe would reduce Flood Re costs and improve value for money, and I hope that the Secretary of State will consider those proposals carefully.

The Bill contains a number of important measures that the Opposition will support. On the back of three important reviews commissioned and published by the previous Government, it builds on the reforms and legislation that we introduced when in office. However, the weakness that lies at its heart is the Government’s inability to stand up to vested interests and their failure to take anything approaching a tough approach to the water companies.

Ministers continue to defend the need for a voluntary approach—a voluntary approach to whether help should be provided to those who struggle with their bills, and a voluntary approach to whether customers are offered relief from rising bills, even where companies are benefiting from financial circumstances beyond their control. Let me tell the Secretary of State that it is now 20 years since privatisation, and the voluntary approach has had more than enough time to be tried and tested. It has failed, so it is time not for more letters from him, but for action.

It is time for a new deal with the water companies: a new deal on the contribution that the water companies make through taxation and investment; a new deal on the steps that the water companies must take to tackle the affordability of water for households that are struggling; and a new deal on the extent to which the water companies are regulated. The Bill could and should have been an important step forward in delivering such a new deal. Instead, it is a wasted opportunity. I hope that the Secretary of State will work with us to improve the Bill, particularly in respect of the need to tackle the rising cost of water for struggling households. If he continues to refuse to act, I can assure him that the next Labour Government will act.